Steel Industry Little Affected by Policy Revival

SHANGHAI, Jul. 31 (SMM) – According to the Ministry of Industry & Information Technology, the policy allowing replacement of imported products with home-made ones is expected to be readopted to help China’s deteriorating steel industry. Steel enterprises approved under the policy will sell  special steel  to export processing enterprises at prices excluding tax, and will enjoy a  rebate of the 17% VAT tax imposed for this kind of trading among dometsic enterprises. The policy mainly covers silicon steel and steel for shipbuilding.

This is government’s supporting measure for the steel industry mired in huge losses. The major beneficiaries will be large state-owned steel mills, while private mills will benefit little from the policy. Large state-owned mills are expected to experience increases in profits via the policy, but the depressed steel industry will unlikely stage significant improvement due to this policy.

First, China’s steel imports are limited. China’s steel imports accounted for a mere 2% of the apparent consumption of crude steel during 1H 2012. The imported steel volumes to be replaced will be quite limited compared with China’s huge domestic steel output.

Second, China’s mainly imports steel products of high technology that domestic mills are unable to produce, so not all imported steel products can be substituted by home-made ones. Although some products can be replaced with substitutes of similar properties or functions, China sees a severe capacity shortage in these products, such as oriented silicon steel. Thus, it is quite difficult to curtail imports for such products in short term despite government subsidies. In the long term, of course, the policy will be conducive to the expansion of high-end steel product capacity in China.

Finally, the policy focuses on enterprises processing raw materials supplied by foreign traders, and the amount of such enterprises is limited, so the influence of the policy will be restricted. Steel enterprises enjoying the policy may confront anti-subsidy investigations.